Human wants are insatiable. That makes it difficult to use one’s income to take care of all your wants. This means there will always be an opportunity cost for every financial decision you make. That is why it is important to avoid certain mistakes when managing your income to build financial stability and growth. Remember, certain mistakes can not be corrected once made or may take longer to get corrected due to obvious constraints. Hence, avoiding these mistakes outlined below will help you to manage your income more effectively and build a firm foundation for your financial goals.
1. Living beyond your means
This is one big mistake people commit daily which comes back to bite them hard. As I indicated above, every financial decision comes with an opportunity cost because there is no independent financial decision in life. It is also true that you can’t eat your cake and still have it. Some people live beyond what their income can afford. For instance, they buy expensive gadgets like cars, phones, clothes, and jewelry, and stay in expensive rented apartments, among other things, knowing very well that their income is way less than the cost. That kind of lifestyle pushes people into constant debt because they always want to keep up with the false identity they created for themselves. It is good to understand that you are not in a contest with anyone.
2. Neglecting a budget
Another mistake is neglecting to budget your expenses. People give the excuse that sticking to a budget is a difficult task to do especially when you can’t predict inflation, as we experience in many economies in Africa today. While this may sound true, the issue of impulse buying and its effects is very dangerous to overlook. I think no matter how you may struggle to stick to a budget, it is better to have a budget than leave your spending plan open without a zip. For exclusive information on budgeting, kindly read my previous article here.
3. Lack of investment diversification
It is a good thing to dedicate a portion of your earnings to investment. However, it is dangerous not to diversify your investment. Never keep all your eggs in one basket because it is risky to put all your money into one type of investment. Diversify your investment to spread risk and improve potential returns. People get carried away when they hear of a company that pays good returns on investment and can easily gather a huge sum of money and put it into it. The result of such investments is always appalling when the company collapses. Don’t shoot yourself in the foot, diversify and increase your chances of earning from different places. You can also get first-hand information from my article on investment.
4. Failing to Plan for Retirement
People can plan for everything with their income except for their retirement. But, one thing that must be noted is that no one can work forever in their lifetime. There will come a time when you need to rest from work. Sadly, a lot of people don’t set aside anything from their earnings toward retirement. They only wake up one day to the reality that they are up or almost up to the retirement age. At that stage, fear and panic start mounting up, because they have not made any provisions for their after-retirement life. Avoid that mistake and be intentional in planning for your retirement because failing to plan for your retirement may mean digging your grave. Read my previous article on retirement planning here.
5. Accumulating High-Interest Debts
Debt is not bad itself; it is the rate at which you accumulate and what you use it for that must be looked at. Nonetheless, some people think it is wise to always borrow or use credit cards as far as what they need can be gotten. But, it must be noted that paying off high-interest debts can easily accumulate and become unmanageable. If you want to manage your income well, learn to live within your income limit as you can.
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